The price of bitcoin has plummeted following an announcement from China’s largest bitcoin exchange that it would no longer be accepting new yuan deposits.

BTC China said that due to action by a third-party payment provider, YeePay, it could no longer accept deposits in the Chinese currency, although it would still be able to process withdrawals. BTC’s chief executive, Bobby Lee, said that YeePay gave notice on Wednesday morning Shanghai time that it would no longer provide services.

Lee blamed government regulation for the decision. China’s central bank warned in early December that bitcoin was not legally protected and had no “real meaning”, and barred financial institutions from using the currency.

On Tuesday, the central bank extended that ban to payment companies like YeePay, and gave them until Chinese New Year, which begins on 31 January, to comply.

At publication time, the value of one bitcoin on BTC China stands at ¥2,630 (£266.02), down from a high of ¥7,395 (£741.70) in late November. Bitcoin has dropped against other currencies in the same period, falling from £750 to £300 in the UK and from $1242 to $480 in the US.

On 18 November, BTC China raised $5m in a funding round from institutional investors Lightspeed. Until then, it had been self-funded by its three co-founders, who opened the site in June 2011.

Bitcoin remains legal to use in China, and the central bank is standing by an announcement that individuals are free to trade it at their own risk. But without third party payment providers, new purchases of the currency are virtually impossible.

That raises doubts about the future of bitcoin. The large boom in value that the currency has seen this autumn is widely thought to be a result of Chinese users adopting it. As Chinese support has since waned, so too has the price.

Bitcoin’s supporters have consistently argued that the currency is impossible to fully ban, since it exists as a decentralised network of transactions. But if it can be rendered useless to merchants and customers, an actual ban may be unnecessary.

China Bitcoin crackdown hits major exchange

China’s largest Bitcoin exchange said it has stopped accepting new yuan deposits.

HONG KONG (CNNMoney)

China’s largest Bitcoin exchange said Wednesday that it has stopped accepting new deposits, a potentially crippling blow that could make it much harder to trade the virtual currency in China.

The exchange — called BTC China — said in a post on Weibo that it “has no option but to stop accepting yuan deposits.”

“Bitcoin deposits, bitcoin withdrawals and yuan withdrawals are unaffected,” the company said. “We will try to provide another deposit option as soon as possible.”

The post came amid reports that Chinese regulators have directed third-party payment services to stop working with bitcoin exchanges. If users are not able to easily deposit yuan into their accounts, it will be difficult for the exchange to function normally.

“As of right now, we have received notice from our third-party payment company that they will disallow customers from making deposits into our exchange,” Bobby Lee, the exchange’s co-founder, told the Financial Times.

On BTC China’s exchange, bitcoin prices quickly dropped more than 25% to around 2,800 yuan ($460). Demand for bitcoin has been particularly strong in China, where investors have eagerly embraced the currency and helped drive its price to dramatic new highs above 7,000 yuan ($1,150) in recent weeks.

Last week, China’s central bank warned that Bitcoin carried substantial risks and issued new rules that prohibit financial institutions from dealing in the digital currency.

This is not the first time that Beijing has moved to place restrictions on an alternative currency. The central bank also took a dim view of the QQ coin, a popular virtual currency created by Chinese tech company Tencent. The government restricted its use to virtual products in 2009.

Bitcoin has surged this year on hopes the experiment in digital money will eventually become a legitimate global currency.

The currency, which trades non-stop on the Mt. Gox exchange and other online markets, is extremely volatile — swings of $100 or more in just a few minutes are common.

In the United States, lawmakers have been examining potential regulations for bitcoin, which is the currency of choice on certain online markets for drugs and other illicit goods.

Bitcoin has received a measure of support from officials at the Federal Reserve, including chairman Ben Bernanke, who said the currency “may hold long-term promise” as part of the international payment system.

Some supporters say government regulation would be a positive for bitcoin, since it could lead to wider adoption of the currency. But others argue that bitcoin is decentralized by design and the government should leave well alone.

The program behind bitcoin was created anonymously and introduced on the internet. Unlike traditional paper currencies, bitcoins are not managed by a central authority and exist only in cyberspace.

Bitcoins are “mined” by powerful computers that complete complex math problems. The total quantity of bitcoin is capped at 21 million, and more than 12 million are currently in circulation.

As the value of BTC continues to hover around $1,000 more and more parts of the financial industry are beginning to wake up to the effect and practicality of virtual currency–and recently this means that Bank of America put it sights on Bitcoin by placing a market cap of $15 billion on it. Although news from China seems to have been grave, people actually in country–and capable of reading Chinese–have come back to say that the “warnings” weren’t alarming at all. And what do Ashton Kutcher, Snoop Dogg, and Krusty the Clown have in common? They have all promoted bitcoins in some way.

Numerous times now, the sudden rise of Bitcoin value has been led by the media (and potential investors) as a “bubble”; but each time the value rises and corrects, the value itself tends to stray higher. A longitudinal look at BTC value over the years shows that it is steadily rising along a logarithmic price path.

“The yellow line is rising at +0.825% daily, though obviously this price path persisting in perpetuity isn’t going to work forever,” notes SiliconANGLE’s founding editor Mark ‘Rizzn’ Hopkins. “It’s important to note that this price path is logarithmic, and it’s the right way to view large magnitude movement.”

The upward value trend of BTC is often also directly tied to cycles of popularity, adoption, and interest amidst merchants and consumers. The addition of Chinese interest saw the value jump enormously and there’s still lots of audience available amid merchants and potential consumers not yet tapped that could push the value even higher.

With each cycle more traditional financial institutions talk about Bitcoin, some flirt with adoption while others actually climb on board. As eBay, Western Union, and others speak about Bitcoin it will only continue to open up new avenues of interest—digital currency is part of our future, Bitcoin or not.

What is really going on in China?

Last week saw “warnings” about Bitcoin cited to the People’s Bank of China about the use of Bitcoin. This was widely reported as China either banning, restricting, or tightly regulating BTC trade in country. The case happens to be that China instead legally defined Bitcoin and Joseph Wang says, “The People’s Bank of China has basically given the green light for Bitcoin trading and exchanges.”

The important takeaway of this news isn’t the regulation (or so-thought “ban” on the currency) but that China has defined Bitcoin not as a currency—as the United States and parts of Europe are beginning to view it—but as a commodity.

This is important because in both Hong Kong and mainland China non-Chinese currencies are not legally permitted for value exchange. In analysis, a big reason why China has defined Bitcoin as a commodity is to fence it off from the primarily financial (currency) market and therefore Chinese financial interests. Doing this allows them to keep BTC in its own space that isn’t tied to Chinese currency and therefore if Bitcoin suddenly implodes it won’t cause a sudden change for China’s economy.

According to Wang, Bitcoin being defined as a commodity by China does the opposite of banning it from exchanges and opens up the opportunity for investors to know that the way is clear.

Snoop Dogg and his upcoming Bitcoin EP and other celebrity tweets

We live in a strange era because it’s rare to discover celebrityendorsement of a currency but this is going on right now. Recently, hip hop legend Snoop Dogg, a.k.a. Snoop Lion, has tweeted his intent to make his next album available to people who want to purchase it with bitcoin.

Actor Ashton Kutcher tweeted in support of Jon Holmquist’s Bitcoin Black Friday (a merchant-consumer bitcoin extravaganza set on the “merchant holiday” of Black Friday, November 29.) Even FOX’s The Simpsons has gotten on board with a recent episode where the character Krusty the Clown mentions the cryptocurrency.

Swiss Lawmakers Propose Treating Bitcoin as Foreign Currency

The Swiss Parliament is considering a postulate that asks for bitcoin to be treated as any other foreign currency. The goal of the postulate, introduced by representative Thomas Weibel, is to eliminate ambiguities and increase legal certainty related to bitcoin.

If it is approved by parliament, it will be submitted before the Federal Council, Switzerland’s principal executive institution. If the Federal Council agrees that bitcoin should be treated like other foreign currencies, it will also evaluate how to implement the postulate. In addition, the executive was asked to examine the potential bitcoin-related opportunities for the Swiss financial sector.

The postulate petitions the executive branch to reply to four basic questions: whether or not bitcoin represents an opportunity for the financial sector, should bitcoin be treated as a foreign currency, what regulatory instruments should be used to establish legal certainty for bitcoin and similar currencies, and what sort of regulatory changes are needed and when can they be implemented.

The postulate was co-signed by 45 members of parliament (out of a possible 200) after they came to the conclusion that bitcoin can create new opportunities for the Swiss financial sector and that measures should be taken to regulate the application of VAT and the execution of money laundering controls.

Swiss Parliament

Over the next few weeks, members of parliament will vote on the postulate. Then, if the majority of members of parliament vote in favour, it will be formally submitted to the Federal Council. If the council responds affirmatively, it will also have to make its position clear to national regulatory bodies such as Finma, the Swiss securities exchange commission.

If all goes as planned, bitcoin could be practically recognized by Switzerland as a legitimate foreign currency. The move would drastically reduce legal uncertainty for bitcoin users, at least in Switzerland, namely the Swiss banking sector. It would allow Swiss authorities to apply existing foreign currency legislation to bitcoin and other digital currencies.

“This would be quite revolutionary, as it provides bitcoin with additional legitimacy and could serve as a precedent for other countries. Also, it would pave the way for businesses to use bitcoins without legal uncertainty in Switzerland.”

Meisser believes it is likely the postulate will make its way through parliament, given that around 25% of its members acted as cosignatories.

Back in September, Jean Christophe Schwaab of the Swiss Socialist Party said the only people in Switzerland who know about bitcoin are “geeks, criminals and special police units” and that there is currently very little or no public discussion about digital currency.

He seems to have adopted a more positive view of bitcoin, having acted as one of the cosignatories of the postulate.

Meisser said: “I spoke to him and he told me that he had changed his opinion regarding outlawing bitcoin, for the meantime, but he remains skeptical overall. The fact that he cosigned the new, positive postulate is very nice.”

Schwaab said he is “very happy” that a large number of MPs now know what bitcoin is and care about the possible regulations.

“I hope that the government’s answer will provide background information on bitcoin and regulations in other countries to allow for fair political discussion. I co-signed the proposal, because it is a contribution to this important discussion,” he concluded.

3 reasons bitcoins aren’t in your wallet yet

As Bitcoin’s popularity grows, so does talk about its standing as legal tender, but there are lingering issues that need to be sorted out before people start using Bitcoin to buy everyday things, experts said on Monday.

Bitcoin has been described both as a store of value and a currency, but it’s debatable whether it is either of those things. Its price can swing wildly from day to day, if not the hour, and its reputation has been tarnished by its connection to the sale of illegal goods and other illicit activity such as money laundering.

For those reasons and more, Bitcoin has a long way to go before it becomes a mainstream form of payment. Here are three challenges that generated some discussion on Monday at The Future of Money and Technology, a conference in San Francisco.

1. Buyer beware

For starters, Bitcoin transactions are designed to be irreversible. So if you buy something online from a merchant that accepts Bitcoin and the transaction turns out to be a scam, or the payment is sent to the wrong place, or any number of other things happen, the buyer will probably lose that money.

”You’re dealing with the honesty of the vendor,” said Steve Kirsch, CEO of OneID, a startup that provides encryption services to protect people’s data. “It’s like giving people cash,” he said during a panel discussion at the conference.

Other panelists, all Bitcoin supporters, agreed that in 2014 more services could appear designed to address this problem, such as escrow accounts that could channel money back to the buyer in the case of fraudulent transactions. The Bitcoin system is built using an open-source framework, so those types of developments could actually happen.

New companies could crop up next year to address this problem. Existing players such as Bitcoin payment processors might also add new features to their services in this area, panelists said.

2. Keeping your bitcoins safe

Every bitcoin has a private key associated with it that, if decrypted, allows the bitcoin to be sent to another computer using peer-to-peer software. Because these private keys are often stored on people’s personal computers or within Web-based services, bitcoins are vulnerable to theft.

”All of the existing mechanisms for security, including its [verification] signatures, are problematic,” OneID’s Kirsch said. Any kind of malware attack can be directed at someone’s computer to steal their bitcoins, he said.

There are different ways of storing this private key. Coinbase and others offer digital wallets. Other companies have “offline” or paper-based wallets to put key ownership back into the user’s hands, literally: The Bitcoin addresses and private keys are printed on a piece of paper. And the Winklevoss twins of Facebook fame have even offered up a solution with so-called vaults.

But none of those strategies gets around the fact that someone still has to store the key somewhere, experts said Monday during the conference.

”If you store it wrong or leave it lying around, it’s just like cash,” said Jared Kenna, CEO at TradeHill, a Bitcoin exchange that suspended trading in August due to banking and regulatory issues.

Having too much encryption, however, might also be a bad thing. “I have friends who are encryption experts,” Kenna said. Some of those friends applied so much encryption to their keys that they couldn’t get them back, he said.

3. Banks aren’t fully on board

Bitcoin recently garnered support from federal officials in Washington, D.C., but many commercial banks still don’t really know what to think about it.

For Bitcoin users thinking about a more traditional route to keeping their monies safe, that could be a problem. The currency is designed to be without any financial or legislative authority, but maybe some regulation is needed after all, panelists said.

”The lack of regulations might do more harm than any regulation could,” said TradeHill’s Kenna. “When there’s no clear regulations, banks don’t want to touch it,” he said.

Bitcoin’s newfound support from Washington, and from popular figures such as entrepreneur Richard Branson, could help clear the roadblocks, others said. “There are big forces going on inside the U.S. government,” said Brewster Kahle, chairman of the Internet Credit Union, a Bitcoin-friendly bank that dumped some of its Bitcoin clients this past summer, citing regulatory issues.

Last week, when Bitcoin’s price hit a new high of $1,240, Bloomberg News compared it to a massive bubble. Then over the weekend, on the news that China’s central banks would be banning Bitcoin, the price fell nearly 50 percent down to $680 apiece. It was the latest in a roller-coaster ride of Bitcoin booms and busts. But the truth is that the wild swings in price Bitcoin has been experiencing are a natural reaction to the massive global interest in a pool of money that is relatively tiny compared to its government-backed peers. And it’s preventing Bitcoin from achieving its real purpose as an innovative new form of currency.

For the first two years of its existence, when its value was still relatively low, the digital currency known as Bitcoin was mainly of interest to cryptographers, hackers, and mathematicians. It is algorithmically generated, impossible to counterfeit, largely anonymous, and capable of moving peer-to-peer without additional fees from middlemen such as banks — technological virtues which give Bitcoin properties uniquely suited to our modern economy. “It really has the potential to become the native unit of exchange on the internet,” says Chris Dixon, a serial entrepreneur and venture capitalist with Andreessen Horowitz. “But that won’t be possible while it’s being inflated by traders who see its value mainly as speculative investment.”

Bitcoin is behaving naturally given the global demand and limited supply

While an increasing number of businesses from WordPress to Lamborghini dealers to Virgin Galactic have declared that they are accepting the currency, consumers will be wary of spending a Bitcoin that might be worth double tomorrow, and the majority of merchants aren’t likely to accept a payment that could lose half its value overnight. As Tim Lee pointed out, there is a fundamental irony to Bitcoin. Its creator — or creators — capped the supply of the currency at 21 million units in total, a structural constraint intended to limit the volatility of inflation. But as demand for Bitcoin has skyrocketed, the constrained supply has led to a wild fluctuation in price.

How can Bitcoin escape the trap of its current identity as a volatile, speculative investment? Advocates argue that a drastically larger monetary base could help to stabilize prices by ensuring that every trade represents a smaller percentage of the overall number of bitcoins available on the market. “In my opinion … for Bitcoin to fulfill its promise as a global currency, global transaction network, and global remittance network, the monetary base will need to be a lot higher than [about] $10 billion,” says Barry Silbert, founder of SecondMarket, which recently announced the launch of its own Bitcoin fund. For a major retailer to start accepting Bitcoin they would need to be able to quickly and easily convert it to their local currency or have the stomach to stand Bitcoin’s dips and dives in price. “The thing that will most positively impact consumer and merchant adoption longer term is a higher price,” says Silbert.

It’s not just small independents who see real potential in Bitcoin as a currency. The Federal Reserve noted in a recent primer that it has potential to store value, and a group of economists from Bank of America issued a study concluding that “Bitcoin could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers. As a medium of exchange, Bitcoin has clear potential for growth, in our view.”

Its value as an investment is undermining its utility as a currency and technology

According to the bank’s economists, while Bitcoin may be a little overvalued now, it is hardly the Ponzi scheme many are making it out to be. But they too felt its intrinsic purpose was compromised, at least for the moment, by the overheated interest in its potential gains. “Bitcoin’s role as a store of value can compromise its viability as a medium of exchange. Its high volatility, a result of speculative activities, is hindering its general acceptance as a means of payments for online commerce.”

The more Bitcoin can prove its value over traditional currency, say proponents, the more prices will stabilize. “I think the key driver for long-term stability will be getting more utility use cases,” says Dixon. “This is of course a chicken-and-egg problem, but there are enough use cases where the incentives are high — for example low-margin cross-border selling and machine-to-machine payments — that I think this will happen.” In order for Bitcoin to truly work, in other words, the majority of users would need to stop treating it like a potential payday, and start putting it to work in the everyday economy.